Managing Your Money

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Market Outlook 2019 –
Punch Bowl Hangover
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Happy New Year!  Thank goodness it’s a new year! Christmas Eve 2018 marked the worst Christmas Eve for the Dow Jones in its 122-year history! And December 2018 was the worst December for the Dow since 1931, ending the month down -8.7%. Most investors are relieved that 2018 is over and looking forward to better prospects in 2019. Regardless of what’s to come, expect that volatility is here to stay. We had a smooth ride for a few years through the middle of the last decade, but that was the exception and it’s not likely to continue. Volatility has always been a part of the markets and like it or not… it’s back!

Considering that you can’t escape the volatility, how do you deal with the stress? During my time in this industry, I’ve been through corrections, recessions, and some turbulent periods. These strategies are what I have found to be the most successful in reducing the stress and anxiety that go along with investing.

1. Having money on the side-lines. If you have money that is “parked” and uninvested, it allows you to be a buyer.  When you’re a buyer AND a seller, you can be happy when the markets go up OR down because as everyone knows, the key to successful investing is to sell when things are up and a buy when they are down. So, if you have money available that you can invest, watching the markets “crash” should look like an opportunity to you – like a Boxing Day sale!  If you’re already investing in some type of managed portfolio then this should already be taken care of for you by the manager, assuming it’s a good manager.

2. Un-correlated investments. Having part of your portfolio in uncorrelated investments is a terrific way to reduce risk, increase returns, and manage your stock market stress. In October 2018 the S&P/TSX saw a decline of -6.5% during the month.  Compare that to the 1.7% positive return of a large, well known Private Equity fund, also for the month of October. That’s a difference of over 8%!  Both are Canadian, both are equities, the difference is that private market equity escapes the wild emotions and panic selling of the public markets.  Looking at 2018 as a whole – the Canadian market (S&P/TSX) finished down -5.8%, and Canadian Bonds finished flat with a (0%) return in 2018. The US market (S&P 500) finished down -9%.  In contrast, two popular uncorrelated investments finished 2018 well in positive territory, with the above mentioned Private Equity fund posting a positive 16.3% and a solid and stable Real Estate fund posting a 2018 return of 6.72%.  The key in this area is to choose high quality investments and work with an advisor and firm knowledgeable in this sector. Private investments require a lot of due diligence, so make sure your advisor is willing to do the work.

3. Know your investment self. This may seem like an obvious one, but if you’re truly feeling stress and anxiety over the market volatility, it’s time to reassess your risk tolerance, as well as your portfolio.  That reassessment requires an understanding of the tradeoff you make when you choose investments that don’t fluctuate.   For example GIC’s, what most people consider a “safe” investment.  I’m being generous but let’s say a 1-year GIC is paying 3% interest.  Since interest is fully taxable, let’s remove 1% to pay the government, and we’re left with 2%.  Inflation is around 2%, so if we remove that too, we’re basically left with a big fat “0”. My job as an investment advisor is not to tell clients how they should feel about their investments, but it’s to adapt the investment strategy to how they feel.  However, when a client tells me that they don’t want any fluctuations in their portfolio, it’s important that they realize that they will likely be left with a negative return or at best no return (after taxes and inflation) should they choose that route.  Assessing and understanding your time frame is a key element as well.  I work mostly with retirees, who see their time frame as short-term because of their age, but once we reframe and consider that their investments will, for the most part, remain invested for the next 20-30 years, it usually changes their outlook.  I’m not saying here to invest one way or another, but to assess yourself honestly. There are plenty of things to cause stress in life, the stock markets shouldn’t be one of them.  There are many tools online if you want to do it yourself, but as with a medical assessment, pairing a questionnaire along with a discussion with an investment professional will lead you to a more thorough overall assessment of your risk tolerance.

4. Trusted advisor. Having a solid trusting relationship with your investment advisor can be a major alleviator of stress over your investments.  When your advisor calls you during bad market periods are you comforted and satisfied by their advice?  Has the advisor been in the industry long enough to have experienced some major ups and downs in the markets?  Is there a clear strategy within your investment portfolio to deal with market ups and downs, and if you’re taking income from your portfolio, is strategic income planning being implemented?  There are good and bad advisors out there.  There are advisors who are salespeople, and there are those who are truly knowledgeable professionals.  You’ll get a good sense of the type of advisor you’re dealing with when they call during bad times.  Having a good trusted advisor will undoubtedly remove some of the stress of the stock markets, so choose carefully.  If you’re sensing that you’re not in good hands, take the time to talk or meet with different people until you find a good fit.  It can make all the difference when you’re feeling uneasy about your investments.

5. Just don’t look! – I mention this one with some humor, but in reality, it can actually be a good strategy if you have long term investments and someone you trust managing your portfolio. Over the years I have had a number of clients who did not open their statements when the markets were dropping.  They simply file them away until things look better.  When the markets are crashing, if you follow any news or even social media you’ll hear about it.  You can assume your investments are being affected as well.  If you’re not planning to sell in that moment, then it doesn’t matter how much they’ve dropped – those prices are for sellers.  You may be better off to wait until things get better to look at your accounts and save yourself the pain and anxiety that comes with seeing how much your portfolio has dropped.

As we head into 2019 with geopolitical instability, and a looming recession, take comfort in the fact that the markets have been through, and survived, worse times – wars, presidential assassinations, terrorist attacks, and many other crises. But it helps to be prepared!

Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 23 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or Lynn.MacNeil@RichardsonGMP.com. Or visit our website at www.EphtimiosMacNeil.com.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.
Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.

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